Will Corporate Defaults Worsen in Latin America?

By Jorge Schmidt, Of Counsel at Diaz Reus International Law Firm in Miami.
“Multiple analysts have pointed out that the threat that rising borrowing costs pose to companies in emerging markets is especially keen in Latin America. Indeed, according to S&P, all emerging-market defaults through the end of March 2023 have been in Latin America. Since the start of the current tightening cycle in early/mid- 2021, the Bank of Mexico has raised rates 15 times, adding 725 basis points to reach 11.25 percent, the central bank of Brazil raised rates 12 times, adding 1,175 basis points to reach 13.75 percent, and Colombia has seen 14 increases totaling 1,150 basis points to reach 13.25 percent. Higher rates are especially risky for Brazilian companies, which have historically relied on variable-rate debt, and whose interest coverage ratios have deteriorated by comparison to their regional peers.”